Opinion
CA 00-0435-BH-C
February 6, 2001
REPORT AND RECOMMENDATION
Plaintiff brings this action pursuant to 42 U.S.C. § 405 (g), seeking judicial review of a final decision of the Commissioner of Social Security ordering the offset of benefits due his wife and minor son on account of his disability allegedly necessitated by a lump sum workers' compensation settlement. This action has been referred to the Magistrate Judge for report and recommendation pursuant to 28 U.S.C. § 636 (b)(1)(B). Upon consideration of the administrative record, plaintiffs proposed report and recommendation, the Commissioner's proposed report and recommendation, and the arguments of the parties at the January 11, 2001 hearing before the Magistrate Judge, it is determined that the Commissioner's decision should be reversed and remanded pursuant to 42 U.S.C. § 405 (g) and that upon remand the Commissioner should redetermine the offset rate by applying either the weekly rate ($23 A6) or monthly rate ($101.66) specified in the 1996 Order Nunc Pro Tunc.
FINDINGS OF FACT
1. On September 26, 1991, the following judgment was entered by Mobile County Circuit Judge Edward McDermott in Sellers case against Burton L. Stallworth d/b/a Escambia Farm Equipment and others:
This action is submitted by the parties for a final judgment upon the Joint Petition for Approval of Settlement filed herein by the parties and the agreement of the parties as expressed therein, and the Court having heard the testimony of the plaintiff and having examined and interrogated the plaintiff and having reviewed the evidence, the Court finds and determines that:
A. On or about May 5, 1987, plaintiff was employed by defendant Escambia Farm Equipment, and the parties were subject to the Workmen's Compensation Act of Alabama. This is a doubtful and disputed workmen's compensation claim arising as a result of injuries alleged by plaintiff to have occurred on said date while acting within the line and scope of plaintiffs employment. Defendant contests the loss of earning capacity claimed by the plaintiff. The extent of plaintiffs disability would be in serious and substantial dispute at the trial of this cause;
B. Defendant had timely notice of plaintiffs alleged accident;
C. Plaintiffs average weekly wages for the 52 weeks immediately preceding the subject accident were $269.17 per week;
D. Defendant has paid weekly compensation benefits for temporary total disability to the plaintiff for 36.9 weeks for a total of $6,598.80. Defendant has paid all medical expenses on behalf of the plaintiff totaling $144,860.19 to date. The plaintiff has recovered the amount of $400,000.00 from a third party tortfeasor. This amount exceeds the compensation disability of the defendant, but the defendant owes its proportionate share of attorney's fees on that portion of the recovery equal to the compensation disability;
E. The sum of $49,757.88, which is the defendant's share of the attorney's fee on the compensation credit for plaintiffs permanent disability, against which the defendant shall receive a credit for $4,399.20 for sums already paid by defendant to plaintiff for temporary total disability, less the defendant's proportionate (113) share of the attorney's fee for that recovery, represents a fair and reasonable sum to be paid to the plaintiff to forever, fully and finally release defendant from any and all claims of plaintiff against defendant for workmen's compensation benefits arising out of the subject injuries. The plaintiff shall have and retain all rights to recover future medical expenses necessary and directly related to the subject injuries and shall seek such necessary treatment from authorized physicians pursuant to the provisions of the Workmen's Compensation Act of Alabama;
F. The employment of Richard H. Sforzini, Jr. by plaintiff as an attorney to represent plaintiff in this action has been approved; and
G. The agreement of the parties as set forth in their petition is in the best interests of the plaintiff and should be approved by the Court. The Court further finds and declares that all terms of said agreement are substantially in accordance with the provisions of the Workmen's Compensation Act of Alabama.
IT IS THEREFORE, CONSIDERED, ORDERED, ADJUDGED AND DECREED by the Court as follows:
1. That the Joint Petition for Settlement heretofore filed in this cause be and the same is hereby APPROVED.
2. That upon defendant paying and delivering to plaintiff the lump sum of $45,358.68 ($49,757.88 less $4,399.20), as set out in the settlement petition, the defendant shall be fully, finally and forever released and discharged from any and all claims of plaintiff for workmen's compensation benefits arising out of the subject accident and injuries as set forth in the joint petition of the parties under the Workmen's Compensation Act of Alabama, provided however that the plaintiff shall have and retain all of plaintiffs rights for payment of future medical expenses reasonable, necessary and directly related to the subject injuries arising out of the accident of May 5, 1987 in accordance with the provisions of the Workmen's Compensation Act of Alabama.
3. That plaintiff having been represented in this proceeding by Richard H. Sforzini, Jr., attorney at law, and such representation having been duly approved by the Court, the Court finds and declares that said attorney is entitle[d] to a fee of 15% of the settlement sum paid with respect to the plaintiffs claim for permanent disability, to-wit $49,757.88, and a fee in the amount of $7,463.68 is hereby APPROVED.
4. The costs of this action be and the same hereby are taxed against the defendant.
(Tr. 434-436)
2. Sellers filed an application for disability insurance benefits on November 14, 1991, alleging an onset date of disability of November 29, 1989. (Tr. 393) On May 5, 1994, Administrative Law Judge James D. Smith issued a decision finding Sellers disabled since November 29, 1989 on account of mental impairments. ( See Tr. 395)
On June 28, 1994, the Social Security Administration's Office of Disability and International Operations sent plaintiff a Notice of Award. (Tr. 404-409) This Notice of Award reads, in relevant part, as follows:
We have to take into account your weekly workers' compensation payment of $178.69 when we figure your Social Security benefits. Because you receive this payment, we are reducing the benefits you are due.
Your benefit will be $252.00 beginning November 1990.
Your benefits were increased beginning December 1990, December 1991, Dece[m]ber 1992 and December 1993 because of the cost of living. These increases were not reduced because of workers' compensation payments.
The pamphlet explains how we reduce your Social Security disability check if the money which you and your family would receive from Social Security and workers' compensation adds up to more than 80 percent of your monthly average current earnings. We found that 80 percent of your average current earnings is $1,026.40.
It is important that you let us know if:
There is any change in the workers' compensation payment or in any public disability payment you receive, or
You receive a lump-sum award or any additional payments which supplement your workers' compensation or public disability payments.
We have to consider workers' compensation and/or public disability payments when we figure a Social Security benefit. The following will explain how these payments affect your benefits. For more information, please read the enclosed pamphlet, "How Your Social Security Check Is Affected By Workers' Compensation and Public Disability Payments."
You have received a lump-sum award of $49,757.88 to settle your workers' compensation claim. A lump-sum award affects Social Security benefits in the same way that periodic payments do. We treat a lump-sum award as if it were paid on a weekly basis.
When we figured how much to reduce your benefits, we excluded $7,463.68 of the legal, medical and other expenses. We treated the rest of the lump sum, $42,294.20, as if you had been paid $178.69 per week.
Beginning February 1994, we can pay you benefits at the full rate. This is because we are no longer considering the workers' compensation lump-sum award when we figure the benefit amount.
(Tr. 406-407)
4. Plaintiffs counsel filed an appeal from the Notice of Award on August 11, 1994. (Tr. 410) "The basis for the appeal is two-fold: first, that no deduction should have been made from Mr. Seller's social security benefits for the lump sum award of $49,757.88 he received from worker's compensation, and secondly, that even if such amount was to be deducted from his social security entitlement, such amount should have been spread out over his lifetime rather than the four or five year period over which it was taken." (Tr. 410) Plaintiffs counsel followed this appeal letter with a letter dated August 19, 1994, asking for further information, as follows: "[P]lease treat this letter as a request for further explanation as to the calculation of the amount of Mr. Seller's first check in the amount of $12,586.00 which, according to the Notice of Award, is the money he is due through May 1994. I have read the Notice of Award over several times and I am still unable to determine how the Social Security Administration calculated this amount." (Tr. 412)
5. On or about October 25, 1994, a Social Security employee sent plaintiffs counsel the SSA's response to the request for reconsideration which the employee incorrectly identifies as having been filed on August 19, 1994. ( See Tr. 415)
Section 224(b) of the Social Security Act, provides that if workers compensation payments are made other than on the periodic basis, the award will be prorated as if the payments were periodic. The lump sum award will be prorated at established weekly rate is as follows: (1) the rate specified in the lump-sum award; (2) the periodic rate prior to the lump sum; or (1) (sic) the State's maximum in the year of injury. The Social Security Regulations No. 4 Section 404.408 (d) provides that expenses that was (sic) incurred may be excluded from offset.
The record contains evidence that shows that periodic payments were made at the weekly rate of $178.69 through July 27, 1989. A lump sum was paid for $49,757.88. The attorney received $7,463.68 in legal fees. We started the proration of the lump sum beginning July 28, 1989 and by excluding the legal fees, the award will end February 03, 1994. Full monthly benefits are payable to the disabled claimant but the benefits to the wife and child are reduced. However, full monthly benefits are payable to the wife and child beginning March 1994. The record show[s] that this adjustment was completed on March 31, 1994 and the underpayment have (sic) been sent.
(Tr. 415-416) Five days later, on October 30, 1994, Sellers was sent a Notice of Change in Benefits. (Tr. 418-420) "Since Joyce and Leonard [are] now entitled to benefits, we changed the amount we can pay you beginning November 1990. We will continue to pay this new monthly amount as long as you receive workers' compensation payments." (Tr. 418)
6. On December 16, 1994, plaintiffs counsel appealed the October 30, 1994 Notice of Change in Benefits and the October 30, 1994 award letters sent to Joyce Sellers and Leonard Sellers. (Tr. 421-422)
The basis for these appeals is as follows: first, that no deduction should have been made from Mr. Seller's social security benefits for the lump sum award of $49,757.88 he received from worker's compensation, and secondly, that even if such amount was to be deducted from his social security entitlement, such amount should have been spread out over his lifetime rather than the four or five year period over which it has (sic) taken.
Please treat this as our notice of appeal and/or request for reconsideration and/or hearing with respect to each of these three claimants. If there are any forms which we need to fill out, please forward them to me.
(Tr. 422)
7. The December 16, 1994 appeal/hearing request fell into administrative limbo. (Tr. 92 ("On December 16, 1994 the claimant, through his attorney, filed a request for hearing on the issue of Workers' Compensation offset. After the filing of the request for hearing, the claim appears to have fallen into Social Security limbo until September 11, 1997 at which time the file was transferred to the Office of Hearings and Appeals in Mobile, Alabama and assigned to the undersigned Administrative Law Judge's docket.").
8. On October 25, 1996, Mobile County Circuit Judge Edward McDermott entered an Order Nunc Pro Tune relating to the September 26, 1991 judgment.
1. That Defendant paid to Plaintiff weekly compensation benefits for temporary disability for 36.9 weeks for a total of $6,598.80 (see Paragraph D. of the Judgment (Exhibit "A") and Paragraph 5 of the Joint Petition (Exhibit "B")).
2. That based upon Plaintiffs recovery from a third party tortfeasor, Defendant was due to recover from Plaintiff the sum of $6,598.80 less Defendant's liability for Defendant's share of the attorney's fee (1/3) on the compensation credit. Therefore, the net sum due Defendant from Plaintiff for Defendant's payment to Plaintiff of temporary disability benefits was $4,399.20 calculated as follows:
This order contains a chart of how these workmen's compensation benefits for temporary disability were paid to Sellers, as follows: (1) he received temporary total disability benefits in the weekly amount of $178.69 from May 5, 1985 through December 6, 1987, for a total of $5,488.33; (2) he received temporary total disability benefits in the weekly amount of $178.69 from September 1, 1988 through September 18, 1988, for a total of $459.49; (3) he received temporary total disability benefits in the weekly amount of $178.69 from January 9, 1989 through January 18, 1989, for a total of $255.28; and (4) he received temporary partial disability benefits in the weekly amount of $178.69 from April 13, 1989 through July 27, 1989, for a total of $395.70. (Tr. 439) These amounts and dates are the same as reflected on the Request For Workers' Compensation/Public Disability Benefit Information form completed by J. O. Burks, an adjuster with GAB Business Service, Inc., on February 24, 1992. (Tr. 156-157)
$6,598.80 — 1/3 of $6,598.80 =
$6,598.80 — 2,199.60 =
$4,399.20.
3. That Defendant agreed to pay Plaintiff for Plaintiffs permanent disability the sum of $49,757.88 against which the Defendant received a credit for $4,399.20 (see Paragraph E. of the Judgment (Exhibit "A"), Paragraph 9.b. of the Joint Petition (Exhibit "B"), and Paragraph 2 of the findings of fact herein). That the sum of $49,757.88 included Defendant's share of litigation expenses in the amount of $3,400.00 (incurred by the Plaintiff in his third party action against the third party tortfeasor) and that the remaining amount $46,357.88 ($49,757.88 less $3,400.00) was paid to Plaintiff by Defendant for Plaintiffs permanent disability. That this amount was calculated as indicated in Paragraphs 4 and 5 of the findings of fact hereinafter.
4. That Plaintiff was 100% disabled, that his weekly compensation rate was $178.78, that his date of birth was November 9, 1947, and that he had a life expectancy of 38 years, and that the present value of the lifetime benefits for Plaintiffs permanent disability was $139,073.63.
5. That since Plaintiff recovered $400,000.00 from a third party tortfeasor and since the settlement by the Plaintiff and Defendant was based on Defendant's liability for its share of attorney's fees (1/3) of the compensation credit (see Paragraph D. of the Judgment (Exhibit "A") and Paragraph 6 of the Joint Petition (Exhibit "B")), the "net amount" which Defendant owed to Plaintiff for Plaintiffs permanency claim was equal to one-third (1/3) of the present value of said lifetime benefits of $139,073.63, or $46,357.88.
6. That the "net effective amount" which Plaintiff received from Defendant for Plaintiffs temporary disability for the three time periods set forth in the table above which ended on July 27, 1989 (see Paragraph 1 of the findings of fact herein) was equal to the following:2,199.60 = $55.54 per week or 39.6 wks
"This amount ($178.78) is slightly different than the amount ($178.69) shown in the table in Paragraph 1 of the finding of facts herein. However, since the parties used this figure ($178.78) in their calculations and settlement, this figure is used for the permanency calculations and no further adjustment shall be made one way or the other in this Order Nunc Pro Tunc so that neither party shall owe the other any sum as a result of this Order."
$55.54 x 52 wks ÷ 12 mos = $240.67 per month. lwk lyr. lyr.
7. That the "net effective amount" which Plaintiff received from Defendant for Plaintiffs permanent disability, that is, $46,357.88, is based upon lifetime benefits due to Plaintiff for on-the-job injuries sustained by Plaintiff which occurred on or about May 5, 1987. That since Plaintiffs life expectancy was 38 years (or 1976 weeks), the "net effective amount" received by Plaintiff from Defendant for his permanent disability, that is, $46,357.88, when spread out over Plaintiffs life-time expectancy represents a payment to Plaintiff by Defendant equal to the following:
$46,357.88 = $23.46 per week 1976 wks
or
$23.46 x 52 wks ÷ 12 mos = 101.66 per month lwk lyr. lyr.
8. That from said compensation amounts due Plaintiff from Defendant, there was deducted an attorney's fee equal to 15% of said compensation amounts, which said fee was paid to Plaintiffs attorney of record herein.
ORDER
Based upon the foregoing findings of fact, the Court hereby renders judgment as follows:Accordingly, it is hereby ORDERED, ADJUDGED and DECREED, that:
1. The foregoing findings of fact be incorporated into the record in order to clarify that Plaintiff Harry B. Sellers has, in effect, received from Defendant Burton L. Stallworth, d/b/a Escambia Farm Equipment, the following amounts for compensation benefits for his on-the-job injuries which occurred on or about May 5, 1987:
a. A total of $2,199.60 for temporary disability, and that this amount represented temporary disability benefits due Plaintiff of $55.54 per month; and
b. A total of $46,357.88 for permanent total disability, and that this amount represents lifetime benefits due Plaintiff of $101.66 per month for the remainder of his natural life.
2. That from said compensation amounts due Plaintiff from Defendant, there was deducted an attorney's fee equal to 15% of said compensation amounts, which said fee was paid to Plaintiffs attorney of record herein.
3. That Defendant will continue to be responsible for Plaintiffs medical expenses which have arisen and/or may arise in the future out of his work related injury in accordance with the Workmen's Compensation Act of Alabama.
4. That this Order serves only to clarify the prior Judgment entered by the Court herein on September 26, 1991 and does not change such Judgment which except as clarified herein shall remain unaffected hereby.
(Tr. 438 439-442)
9. As alluded to earlier, ALJ James D. Smith was assigned Sellers' workers' compensation offset issue on or about September 11, 1997. ( See Tr. 92) A hearing was held on November 19, 1997. (Tr. 113-122) No testimony was taken at the hearing (Tr. 116); rather, plaintiffs counsel simply set forth his legal argument why the offset should not have been made and alternatively, even if the benefits were properly subject to offset, why the offset was calculated incorrectly ( see Tr. 116-121).
From a legal standpoint, it was our contention that the amount of money that he received, what he received when he finally settled with the Workers' Comp carrier, was an amount due for the Workers' Comp insurance company's portion of the attorney[']s fee, in respect to what his claim would have been. And what that means is this. He received nothing because he, because he settled his claim against the third party, which was Winn-Dixie, in a lawsuit in the Circuit Court of Mobile County, . . . Alabama. He was not, anything he'd received from, in that lawsuit from the third party would have been, had to be paid back to the Workers' Comp carrier. They would not waive their lien. But in that process, we extinguished the Workers' Comp lien, and in doing so, the Workers' Comp carrier had to pay an attorney[']s fee, which should have been the same as the attorney[']s fee that Mr. Sellers had agreed to pay us, which was onethird, in respect to the third-party case against Winn-Dixie. So that's what, that's what he got, he got, he, in essence, paid, I didn't take the fee as onethird in my case against Winn-Dixie and the, whatever we received from Workers' Comp, when it was paid, but in essence he, he paid me one-third of that one-third on behalf of Winn-Dixie, until he received it back from, from the Workers', until we settled with Winn-Dixie, at which time the Workers' Comp carrier agreed to pay their one-third of the on[e]-third attorney[']s fees, so, I mean that's what the argument is and it's kind of a, I think kind of a complicated argument, because of the way in which this particular, the lawsuit was handled.
So they would have gotten back the difference between $139,000 and $46,000. So, in essence, there would have been a wash there. In this case, we never settled with Workers' Comp, before the third party, and so what we received from the Workers' Comp was this $46,000, which was equivalent to their portion of the attorney[']s fee. And again, it's our argument that that's what, that's what he received, in essence, from the Workers' Comp, was their payment of a part of my attorney[']s fee, and therefore[,] there shouldn't, you know, it's not, it's not really a lump-sum settlement of benefits to him.
(Tr. 116-117 119)
10. ALJ Smith, on May 20, 1998 issued a decision finding that "the benefits payable to the claimant and to his dependents have been properly subject to offset under Section 224 of the Social Security Act for Workers' Compensation benefits received by the claimant." (Tr. 97)
In this case, the claimant entered into a settlement of his Workers' Compensation claim after he had already settled a third party negligence claim. Under the Workers' Compensation laws of the State of Alabama, the compensation carrier can claim repayment of any compensation benefits paid to the injured worker less its proportional share of the cost of obtaining the funds. In this case, only $6,598.80 of temporary total disability benefits had already been paid. The settlement document recognizes that the settlement received in the third party action exceeds the liability of the compensation carrier for the total disability of the claimant. Thus, the carrier claimed credit against the present value of the claimant's claim for total disability. The settlement document notes that the lump-sum settlement of $49,757.88 is based upon the Workers' Compensation carrier[']s liability for the attorney's fees for the present value of the Workers' Comp claim for total disability and the temporary total disability benefits paid. The original settlement document also makes clear that the $49,757.88 settlement was reduced by a credit for $4,399.20 which represented the sums paid for temporary total disability less the carrier's proportionate share of the attorney's fee for the recovery. Thus, the claimant was only to receive a lump-sum settlement of $45,358.68. This payment was further reduced by the attorney's fee approved by the Court in the amount of $7,463.68. Thus, under the Comp judgment the claimant was only to receive $37,895.00 as the result of the lump-sum settlement approved on September 26, 1991 (Exhibit B-16). The original settlement papers gave no periodic rate for proration of the lump-sum settlement.
The undersigned notes that the attorney for the claimant did obtain a Nunc Pro Tunc Order from the Circuit Court of Mobile County, Alabama, on October 25, 1996. This order purports to set forth a rate for proration of the lump-sum settlement (Exhibit B-16, pages 5-9). The Social Security Administration has issued Social Security Ruling SSR 97-3 regarding the validity of an amended stipulation on a prior Workers' Compensation settlement award. In that ruling the Administration has stated that it "is not bound by the terms of a second or amended stipulation in determining whether and by what rate a disabled [w]orker's Social Security disability insurance benefits should be offset on account of a Workers' Compensation lump-sum payment." The Administration will evaluate both the original and amended documents and disregard any language which conflict[s] with the terms of the first stipulation concerning the actual intent of the parties and where the terms of the amended document would have the effect of circumventing the Workers' Compensation offset provisions of Section 224 of the Act.
In this case, the second order obtained by the claimant is clearly obtained only for the purpose of circumventing the offset provisions of the Act. While the amount of the settlement may have been based upon a proportional share of attorney's fees regarding the settlement in the third party claim, it is clear on the face of the original document that the money is not intended to cover attorney's fees, but is a settlement for future compensation owed. Thus, the Administration was proper in pursuing offset of benefits in this case. Since no proration rate was stated in the original Judgment, the Administration correctly used the periodic rate paid to the claimant prior to his settlement.
With regard to the claimant's argument that the offset should not have been applied against the auxilary benefits, specifically mother's benefits and child's benefits, the Social Security Administration, pursuant to the powers granted it under the Act, has promulgated regulations dealing with the offset of Workers' Compensation benefits. The Administration has determined that when an offset of benefits is necessary, reduction should first occur from all benefits due except disability insurance benefits, and only after the sum of all other benefits is exhausted, should the reduction be applied to disability insurance benefits (see 20 C.F.R. § 404.408 (h)). Thus, the Administration properly applied the offset provisions of Section 224 of the Act as a reduction of the mother's benefits and child's benefits due on the claimant's earnings record.
The ALJ additionally noted the following: "Since the record is unclear regarding the total amount of benefits withheld in this case, the Administrative Law Judge instructs that the proper component of the Social Security Administration audit the account to ensure that proper credit was given for all the funds that should have been excluded from the lump-sum settlement." ( Id.)
FINDINGS
After careful consideration of the entire record, the Administrative Law Judge makes the following findings:
1. The record establishes that the claimant sustained a workrelated injury on May 5, 1987 which was within the scope of the Workers' Compensation Law of the State of Alabama.
2. The claimant entered into a lump-sum settlement of his Workers' Compensation claim on September 26, 1991. At that time he settled his claim in the amount of $49,757.88 with a credit to the compensation carrier for $4,399.20, representing temporary total disability payments already paid. This resulted in a total payment due at the time of settlement of $45,358.68.
3. On September 26, 1991 a judgment was issued in the Workers' Compensation action approving the lump-sum settlement and approving an attorney's fee in the amount of $7,463.68 to be paid out of the lump-sum award.
4. On October 25, 1996 an order Nunc Pro Tunc was issued in the Circuit Court of Mobile County, Alabama, but said order has no binding effect on this tribunal as it would have the effect of circumventing the Workers' Compensation offset provisions of Section 224 of the Act.
5. The Social Security Administration correctly prorated the claimant's net lump-sum award of compensation benefits using the claimant's periodic weekly compensation rate, since the original order provided no other rate.
6. The Social Security Administration properly reduced the child's and mother's benefits paid on the claimant's earnings record prior to reduction of the claimant's own disability insurance benefits.
(Tr. 94-97)
11. Plaintiffs counsel filed a request for review of the ALJ's unfavorable offset decision to the Appeals Council on July 10, 1998. (Tr. 17; see Tr. 19-22)
While the Administrative Law Judge refers to Social Security Ruling SSR 97-3 ". . . regarding the validity of an amended stipulation on a prior Workers' Compensation settlement award," the Administrative Law Judge did not consider or failed to fully appreciate the substantive Workers' Compensation Law of the State of Alabama; otherwise, it would have been apparent that the only way the claimant, Mr. Sellers, could have obtained the amount of the award which he obtained in his Worker's Compensation case was to receive an award based upon permanent total disability as opposed to permanent partial disability (the Nunc Pro Tunc order contained explicit detail about the methodology used to calculate Mr. Sellers' award). In other words, Mr. Sellers could not have received the amount of the award which he received unless it was based upon a permanent total disability as opposed to a permanent partial disability. In Alabama, payments for permanent total disability are based upon the worker's life expectancy (in this case approximately 35 years) as opposed to permanent partial settlements which are generally limited to payments for three hundred (300) weeks. Once such an award is made for permanent partial disability, the litigants then pro-rate the award over the worker's life expectancy. That is what Ruling SSR 97-3 was intended to avoid, which was not the case here.
In support of his appeal, there is submitted herewith correspondence between undersigned counsel (who represented Mr. Sellers in both his Workers' Compensation claim and as well as this Social Security matter) and the attorney(s) for the employer. This correspondence demonstrates that it was undersigned counsel's opinion that Mr. Sellers was permanently totally disabled and undersigned counsel ultimately prevailed in his argument with counsel for the employer in that regard leading to a permanent total award based upon life expectancy as opposed to a permanent partial award which would have been limited under Alabama law to approximately three hundred weeks.
This correspondence bears out counsel's argument to the Appeals Council. ( See Tr. 23-87) For instance, beginning on June 22, 1990, plaintiffs counsel kept speaking of Sellers' permanency claim, that is, his permanent total disability (Tr. 28-3 0) and eventually, the employer's attorney spoke of Sellers' permanent total disability after first speaking in terms of permanent partial disability ( compare Tr. 34 (permanent partial impairment) with Tr. 40 ("On October 30, 1990, we made an offer that would completely resolve this matter based on a finding that Mr. Sellers was one hundred percent disabled, that his compensation rate was one hundred and seventy-eight dollars and seventy-eight cents, ($178.78) and that he had a thirty-eight year life expectancy. We found that his permanency claim is two hundred and eight thousand, five hundred and nine dollars and thirty-two cents, ($208,509.32). If it were settled in a lump sum it could be reduced to one hundred and thirty-nine thousand, seventy-three dollars and sixty-three cents ($139,073.63). Since the third party recovery was four hundred thousand dollars (400, 000.00) and in excess of the permanency claim then we would have to pay only the one third contingency fee associated with recovering that figure which computes to forty-six thousand, three hundred and fifty-seven dollars and eighty-eight cents ($46,357.88).") and Tr. 85 ("My client has agreed to offering you $3,400.00 for what we would consider to be our pro-rata share of expenses (34%). This amount, combined with the workers compensation claim, would be $49,757.88."))
(Tr. 20-21 (footnote added))
12. The Appeals Council denied plaintiffs request for review on March 7, 2000. (Tr. 3-4)
The Appeals Council has concluded that there is no basis under the above regulations for granting your request for review. Accordingly, your request is denied and the Administrative Law Judge's decision stands as the final decision of the Commissioner of Social Security in you case.
The Appeals Council has also considered the contentions raised in your representative's letter dated July 10, 1998, as well as the new evidence which accompanied that letter. However, the Council concluded that neither the contentions nor the additional evidence provides a basis for changing the Administrative Law Judge's decision.
(Tr.3)
13. Plaintiff filed suit in this Court seeking review of the Commissioner's unfavorable offset decision on May 10, 2000. (Doc. 1) Plaintiff makes the following two arguments: (1) the ALJ erred in applying SSR 97-3 to ignore the effects of the October 25, 1996 Order Nunc Pro Tunc on the calculation of any offset of benefits; and (2) even if the ALJ properly applied SSR 97-3, he erred in affirming the offset because under the original September 26, 1991 judgment the settlement was not for workers' compensation benefits but for contribution toward attorney's fees and therefore, was not subject to offset under 42 U.S.C. § 424a(b). Because the undersigned finds an improper application of SSR 97-3 to the facts of this case, the Court need not reach plaintiffs alternative argument.
CONCLUSIONS OF LAW
1. Section 224 of the Social Security Act, 42 U.S.C. § 424a, provides that where an individual is receiving both state workers' compensation benefits and Social Security disability insurance benefits on account of a disability, his Social Security benefits "shall be reduced" by that amount necessary to ensure that the combination of these two sources of benefits does not exceed 80 percent of the individual's average predisability earnings. 42 U.S.C. § 424a(a). The offset provision provides in pertinent part:
If for any month prior to the month in which an individual attains the age of 65 —
(1) such individual is entitled to benefits under section 423 of this title, and
(2) such individual is entitled for such month to —
(A) periodic benefits on account of his or her total or partial disability (whether or not permanent) under a workmen's compensation law or plan of the United States or a State, or
(B) . . . the total of his benefits under section 423 of this title for such month . . . based on his wages and self-employment income shall be reduced (but not below zero) by the amount by which the sum of —
(3) such total of benefits under section 423 . . . of this title for such month, and
(4) such periodic benefits payable (and actually paid) for such month to such individual under such laws or plans, exceeds the higher of —
(5) 80 per centum of his "average current earnings", or
(6) the total of such individual's disability insurance benefits under section 423 of this title for such month . . . based on his wages and selfemployment income, prior to reduction under this section.42 U.S.C. § 424a(a)(1)-(6); see also 20 C.F.R. § 404.408.
2. "The offset statute reflects Congress's concern that recovery of overlapping worker's compensation and social security disability benefits decreases an injured worker's incentive to seek rehabilitation and further employment." Olson ex rel. Estate of Olson v. Apfel, 170 F.3d 820, 822 (8th Cir. 1999), citing Richardson v. Belcher, 404 U.S. 78, 82-83, 92 S.Ct. 254, 30 L.Ed.2d 231 (1971); see also Iglinsky v. Richardson, 433 F.2d 405, 407 (5th Cir. 1970) (noting that the purpose of this provision is to "ensure that a claimant who was also entitled to benefits under a state compensation program did not, by virtue of his right to payments from two sources, receive excessive compensation for the same injury."); Wilson v. Apfel, 81 F. Supp.2d 649, 652 (W.D.Va. 2000) ("The purpose of this provision is to ensure that a claimant does not receive double benefits for the same injury, reducing his or her incentive to return to work."); Wal-Mart Stores, Inc. v. Bratton. 678 So.2d 1071, 1075 (Ala.Civ.App. 1995) ("Social Security benefits must be offset by the amount of workmen's compensation benefits available in order to prevent a windfall to the individual. . . . Neither federal nor state law seeks to provide benefits attractive enough to reward an individual for his physical incapacity or to discourage him from attempting to regain the ability to work if he or she is able to do so."), judgment rev'd Ex parte Bratton, 678 So.2d 1079 (Ala. 1996).
3. Periodic benefits subject to offset under § 424a(a) include lump sum awards received as a substitute for periodic payments. 42 U.S.C. § 424a(b). Section 424a(b) provides:
If any periodic benefit for a total or partial disability under a law or plan described in subsection (a)(2) of this section is payable on other than a monthly basis (excluding a benefit payable as a lump sum except to the extent that it is a commutation of, or substitute for, periodic payments), the reduction under this section shall be made at such time or times and in such amounts as the Commissioner of Social Security finds will approximate as nearly as practicable the reduction prescribed by subsection (a) of this section.Id. Thus, this section instructs the Commissioner to treat a lump sum workers' compensation award that is paid as a substitute for periodic payments in such a way as to approximate as nearly as practicable the setoff that would have occurred had the payment been made periodically rather than in a lump sum. Id.; see Bubnis v. Apfel, 150 F.3d 177, 181 (2nd Cir. 1998) ("[W]e will uphold the Commissioner's determination of the offset rate on Bubnis's lump-sum settlement award as long as the rate can reasonably be said to approximate most closely the rate at which Bubnis's monthly disability benefits would have been reduced had the workers' compensation benefits been paid monthly.").
4. Having chosen not to reach the second issue raised by plaintiff, since the ALJ committed reversible error respecting his application of SSR 97-3 to the facts of this case, cf Pendley v. Heckler, 767 F.2d 1561, 1563 (11th Cir. 1985) ("Because the `misuse of the expert's testimony alone warrants reversal,' we do not consider the appellant's other claims."), the undersigned simply assumes, without deciding, that the lump sum award in this case was a commutation of, or substitute for, periodic payments for Sellers' total permanent disability and, therefore, subject to offset as set forth in § 424a(a), as opposed to being legal fees or expenses excluded from computation, see Olson, supra, 170 F.3d at 825 ("The Commissioner interprets the term [`a substitute for' periodic benefits] to mean lump sum payments that are not intended to reimburse specific expenses related to a workplace injury or a worker's compensation claim, such as medical, legal, rehabilitative, and retraining expenses. Under this interpretation, periodic benefits include unrestricted lump sum payments that are available to replace the injured worker's wages."); 20 C.F.R. § 404.408 (d) ("Amounts paid or incurred, or to be incurred, by the individual for medical, legal, or related expenses in connection with the claim for public disability payments . . . or the injury or occupational disease on which the public disability award or settlement agreement is based, are excluded in computing the reduction under paragraph (a) of this section to the extent they are consonant with the applicable Federal, State, or local law or plan and reflect either the actual amount of expenses already incurred or a reasonable estimate, given the circumstances in the individual's case, of future expenses."). However, simply recognizing that federal law governs the offset issue, Krysztoforski v. Chater, 55 F.3d 857, 859 (3rd Cir. 1995) ("[W]e hold that federal law governs in determining whether a workers' compensation loss-of-use award should be offset against SSDI benefits. Section 424a does not refer or defer to state law for the determination of whether a person's periodic workers' compensation benefits are subject to offset.") and making the foregoing assumption does not end the case because this Court must necessarily decide whether the Commissioner properly determined how to prorate the lump-sum award for purposes of the offset provisions of § 424a. It is in making this determination that the undersigned concludes that the ALJ improperly applied SSR 97-3 to the facts of this case and failed to look to Alabama law "to inform the nature of the workers' compensation payments, particularly whether the benefits were for `total or partial disability . . . under a workmen's compensation law or plan.'" Krysztoforsk, supra; see also Nicely v. McBrayer, McGinnis, Leshe Kirkland, 163 F.3d 376, 384 (6th Cir. 1998) (noting that SSR 82-5 asserts the importance of state law in assessing the nature and purposes of benefit payments).
This assumption is inherently reasonable given the manner in which the 1991 judgment and 1996 Order Nunc Pro Tunc read. ( See, e.g., Tr. 435 436 ("The sum of $49,757.88, which is the defendant's share of the attorney's fees on the compensation credit for plaintiffs permanent disability, against which the defendant shall receive a credit for $4,399.20 for sums already paid by defendant to plaintiff for temporary total disability, less the defendant's proportionate (1/3) share of the attorney's fee for that recovery, represents a fair and reasonable sum to be paid to the plaintiff to forever, fully and finally release defendant from any and all claims of plaintiff against defendant for workmen's compensation benefits arising out of the subject injuries. . . . That upon defendant paying and delivering to plaintiff the lump sum of $45,358.68 ($49,757.88 less $4,399.20), as set out in the settlement petition, the defendant shall be fully, finally and forever released and discharged from any and all claims of plaintiff for workmen's compensation benefits arising out of the subject accident and injuries as set forth in the joint petition of the parties under the Workmen's Compensation Act of Alabama[.]"); Tr. 441 ("That the `net effective amount' which Plaintiff received from Defendant for Plaintiffs permanent disability, that is, $46,357.88, is based upon lifetime benefits due to Plaintiff for on-the-job injuries sustained by Plaintiff which occurred on or about May 5, 1987.")) Given the language contained in the 1991 judgment and 1996 Order Nunc Pro Tunc, the undersigned is of the opinion that it would be all but impossible for this Court to find the ALJ's determination that the lump sum award was subject to offset under § 424a either legally erroneous or unsupported by substantial evidence of record. Even more importantly, it is not necessary that the Court reach this issue since a reversal on either basis will have essentially the same impact.
5. In putatively computing the offset rate for Sellers' workers' compensation lump-sum settlement award, the ALJ followed the guidelines set forth in SSR 87-21c (Tr. 94) and the Program Operations Manual System ("POMS") at § DI 52001.555C.4, see Bubnis, supra, 150 F.3d at 180, both of which list in descending order of priority three ways to compute the weekly or monthly offset rate when the workers' compensation benefits are awarded in a lump sum as a substitute for periodic payments:
The undersigned stresses the word putatively because nowhere does the ALJ ever specifically state the exact weekly (or monthly) offset rate, noting only that "the Administration correctly used the periodic rate paid to the claimant prior to his settlement." (Tr. 96) Such a finding means little to the Court in determining whether the ALJ's decision is supported by substantial evidence particularly in light of the ALJ's concluding notation that "[s]ince the record is unclear regarding the total amount of benefits withheld in this case, the Administrative Law Judge instructs that the proper component of the Social Security Administration audit the account to ensure that proper credit was given to all the funds that should have been excluded from the lump-sum settlement." (Tr. 97) Clearly, the ALJ was having a difficult time making all the numbers "crunch" in this case and therefore, his failure to mesh those numbers would offer no basis for this Court to affirm his decision even assuming it agreed with the remaining portions of his decision.
1. The rate specified in the lump-sum award.
2. The periodic rate paid prior to the lump sum (if no rate is specified in the lump-sum award).
3. If Workers' Compensation, the state's Workers' Compensation maximum in effect in the year of injury. This figure can be used if no rate is specified in the award or there was no proceeding (sic) periodic rate.
SSR 87-21c. The ALJ concluded that because the September 26, 1991 judgment did not set forth a periodic rate for proration and the rate of proration set forth in the October 25, 1996 Order Nunc Pro Tunc was due to be rejected pursuant to SSR 97-3, "the Administration correctly used the periodic rate paid to the claimant prior to his settlement." (Tr. 95 96) The ALJ had this to say about SSR 97-3:
The Social Security Administration has issued Social Security Ruling SSR 97-3 regarding the validity of an amended stipulation on a prior Workers' Compensation settlement award. In that ruling the Administration has stated that it "is not bound by the terms of a second or amended stipulation in determining whether and by what rate a disabled Worker's Social Security disability insurance benefits should be offset on account of a Workers' Compensation lump-sum payment." The Administration will evaluate both the original and amended documents and disregard any language which conflict (sic) with the terms of the first stipulation concerning the actual intent of the parties and where the terms of the amended document would have the effect of circumventing the Workers' Compensation offset provisions of Section 224 of the Act.
In this case, the second order obtained by the claimant is clearly obtained only for the purpose of circumventing the offset provisions of the Act. While the amount of settlement may have been based upon a proportional share of attorney's fees regarding settlement in the third party claim, it is clear on the face of the original document that the money is not intended to cover attorney's fees, but is a settlement for future compensation owed.
(Tr. 95-96) The undersigned, as indicated above, is willing to agree with the ALJ that the lump-sum settlement was for future compensation owed but such concession does nothing to inform the analysis of whether the Order Nunc Pro Tunc was obtained for the purpose of circumventing the offset provision of the Act. Rather, had the ALJ analyzed the 1996 order and 1991 judgment in light of clearly established Alabama workers' compensation law, he would have reached the inescapable conclusion that the 1996 order merely serves to clarify the clear intent of the parties in the 1991 judgment that the lump sum settlement was reached based upon the life expectancy of Sellers and was not obtained to circumvent the offset provisions of the Act. Prior to analyzing SSR 97-3 any further, therefore, the undersigned looks to Alabama workers' compensation law to inform the nature of the instant lump-sum award.
6. The Alabama Workmen's Compensation Act provides disability compensation for four general classifications of injured workers: (1) temporary total disability; (2) temporary partial disability; (3) permanent partial disability; and (4) permanent total disability. Ala. Code § 25-5-57(a)(1)-(4) (1992); see also Exparte Adkins, 565 So.2d 633, 635 (Ala. 1990) ("The Alabama Workmen's Compensation Act contemplates the following types of disability: temporary total disability, § 25-5-57(a)(1); temporary partial disability, § 25-5-57(a)(2); permanent partial disability, § 25-5-57(a)(3); and permanent total disability[,] § 25-5-57(a)(4)."). Compensation for permanent partial disability is based upon the extent of the disability, e.g., the loss of an arm and a leg, and cannot exceed 400 weeks, Ala. Code § 25-5-57(a)(3); see Bruno's Inc. v. Fowler, 710 So.2d 437, 439-441 (Ala.Civ.App. 1997) (permanent partial disability benefits awarded for three hundred weeks, minus credit for the time for which temporary total disability benefits were paid, upon a finding that the individual sustained a compensable injury and 45% loss of earning capacity), whereas compensation for permanent total disability is based on the individual's life expectancy aggregated to its present value, see, e.g., Burden v. Huckaba, 708 So.2d 199, 203-204 (Ala.Civ.App. 1997) ("Our supreme court in Ex parte St. Regis Corp., 535 So.2d 160 (Ala. 1988), held that when awarding a lump-sum attorney fee for future benefits, the trial court must calculate the present valucof the future compensation, must reduce that amount by the amount of the lump-sum attorney fee, and must calculate the amount of weekly benefits that an employee is entitled to during the period of his or her life expectancy. The trial court correctly computed the award of the lump-sum attorney fee due at the time of trial in accordance with Ex parte St. Regis; however, the trial court miscalculated the amount of Huckaba's future weekly benefits after deducting the lump-sum attorney fee awarded from the present value of the future benefits. At the time the calculation was made, the 6 percent discount rate for present value was correctly determined to be 767.6650 for a life expectancy of 1, 865.24 weeks from the annuity and mortality tables provided in Ala. Acts 1996, p. 1763. . . . The correct calculation for this amount would be the worker's weekly benefit, $224.23, times the discount factor, 767.6650 in this case, for a total benefit of $146,313.49. The worker's weekly compensation payment is then determined by dividing this balance by the discount factor, i.e., $146,313.49/767.6650 = $190.60.").
Though Alabama's Workmen's Compensation Act was amended in 1992, the sections cited to in this opinion contain no substantive changes and therefore, the 1992 replacement volume is cited to by the undersigned.
"The total and permanent loss of the sight of both eyes or the loss of both arms at the shoulder or any physical injury or mental impairment resulting from an accident, which injury or impairment permanently and totally incapacitates the employee from working at and being retrained for gainful employment, shall constitute prima facie evidence of permanent total disability but shall not constitute the sole basis on which an award of permanent total disability may be based." Ala. Code § 25-5-57(a)(4)d.
In 1985, the Alabama legislature rewrote § 25-5-57 to eliminate the 300-week limitation on the duration of temporary total disability "and to allow conversion of temporary total disability to permanent disability, if necessary, after maximum medical recovery is reached." Ex parte DCH Regional Medical Center, 571 So.2d 1162, 1164 (Ala.Civ.App. 1990); see also Jowers v. Williams, 567 So.2d 359, 360 (Ala.Civ.App. 1990) ("Section 25-5-57(a)(1), Code 1975, provides that when an employee's temporary total disability becomes permanent, his compensation is then governed by § 25-5-57(a)(4), Code 1975, which is the section setting out the compensation schedule for permanent disability.").
7. Had the ALJ taken a look at the compensation provisions of Alabama's Workmen's Compensation Act concurrent with his review of the 1991 judgment and the 1996 Order Nunc Pro Tunc, it is clear to the undersigned that he would have realized that the 1996 order was simply an elucidation of the clear intent of the parties in 1991 in agreeing that "[t]he sum of $49,757.88, . . . [was] the defendant's share of the attorney's fee on the compensation credit for plaintiffs permanent disability, against which the defendant shall receive a credit for $4,399.20 for sums already paid by the defendant to plaintiff for temporary total disability[.]" In other words, when Alabama's Workmen's Compensation Act is considered in conjunction with these two documents it becomes apparent that the only way the parties could have come up with the settlement number for plaintiffs permanent disability in the 1991 judgment was by factoring in plaintiffs life expectancy since that is the definition of permanent total disability under Alabama law. Had the agreement been that Sellers had a permanent partial disability, as opposed to the clear permanent total disability, the most that the lump sum settlement could have been was one-third of $178.69 multiplied by 400 weeks and the percentage of loss of earning capacity, see Bruno's Inc. v. Fowler, supra, that is, significantly less than the presentl value of $23,825.33. Accordingly, the undersigned does not hesitate in concluding that the intent of the parties in 1991 was to settle for one-third of the present value of lifetime benefits for plaintiffs permanent total disability, as reflected by Mr. Sforzini's argument to the Administration on August 11, 1994 that the lump sum award should have been spread out over Sellers' lifetime (Tr. 410) and the letters supplied to the Appeals Council which reflect the parties' agreement that the lump sum agreed to was based upon the plaintiffs life expectancy (Tr. 40; see also Tr. 85), and therefore, the ALJ should have accepted one of the offset rates set forth in the 1996 Order Nunc Pro Tunc rather than rejecting the order pursuant to SSR 97-3. Cf Hodge v. Shalala, 27 F.3d 430, 435 (9th Cir. 1994) ("Where the monthly offset rate can be determined by the application of established state law, the clear statutory command governs. In such cases, there is simply no need to turn to the guidelines for assistance, and their application is not warranted. Viewing the issue from a different perspective, the guidelines must be read in light of the clear statutory requirement. Under that approach, if the guidelines are to be applied, it must be done in a manner consistent with the statute. In order to do so, we must construe the term `award' as having a broader meaning than the Secretary suggests. Under that view, § DI 5200 1.555(C)(4)(a) of the guidelines refers not only to a rate set forth in haec verba, but also to a rate specified by operation of law. In short, under either approach, the ALJ should apply the state's prior periodic rate only where the applicable monthly offset rate is not established by state law.").
The 1996 Order Nunc Pro Tunc simply set forth where the $49,757.88 figure came from under the Alabama Workmen's Compensation Act.
This particular number is derived by multiplying $178.69 by 400.
8. The clear thrust of SSR 97-3 is the actual intent of the parties in reaching the original agreement and the disregarding of any language in a second, or amended stipulation, which has the effect of altering the terms of that original lump-sum settlement. SSR 97-3 ("Based on section 224 of the Act, case law, and SSA policy, SSA is not necessarily bound by the terms of a second, or amended stipulation in determining whether and by what rate a disabled worker's Social Security disability insurance benefits should be offset on account of a WC lump-sum payment. SSA will evaluate both the original and amended stipulations and disregard any language which has the effect of altering the terms in the original lump-sum settlement where the terms in the amended document are illusory or conflict with the terms of the first stipulation concerning the actual intent of the parties, and where, as here, the terms in the amended document would have the effect of circumventing the WC offset provisions of section 224 of the Act. To give effect to such illusory terms would frustrate Congress' intent to avoid duplicate benefits."). Here, the 1996 Order in no way altered the terms of the 1991 judgment; rather, that order simply served to clarify the intent of the parties in reaching the lump sum settlement of $49,757.88, as reflected and verified by the letters presented to the Appeals Council.
The facts giving rise to SSR 97-3 included proration of the lump sum received by the disabled worker on August 19, 1994, at the weekly rate of $477.35, the rate at which the worker had been receiving benefits just prior to the lump-sum award, and subsequent to offset and nearly two years after the date of the original lump-sum agreement, an amended lump-sum award was agreed to which attempted to prorate the lump-sum award over the worker's life expectancy, which would have resulted in a weekly benefit of $64.97. This case stands in striking difference to those facts, as well as the facts of other pertinent cases decided since the issuance of that ruling, see, e.g., Bubnis, supra, 150 F.3d at 180 ("[T]he Workers' Compensation Board decision approving Bubnis's lump-sum award specified an allocation rate of $150 per week[.]"), because here there was no proration of the lump sum received by Sellers in the 1991 judgment contained in that document; rather, there was simply the agreement that the parties were setting plaintiffs permanent total disability claim for $49,757.88.
9. The undersigned concludes that the ALJ committed reversible legal error in applying SSR 97-3 to the facts of this case. Therefore, it is recommended that this case be reversed and remanded to the Commissioner of Social Security so that he can redetermine the rate of offset by using either the weekly rate ($23.46) or monthly rate ($101.66) specified in the 1996 Order Nunc Pro Tunc. It is only by treating the lump-sum workers' compensation award made here in the foregoing manner that the Commissioner can approximate as nearly as practicable the setoff that would have occurred had the payment been made periodically rather than in a lump sum.
CONCLUSION
It is recommended that the unfavorable offset decision of the Commissioner of Social Security be reversed and remanded pursuant to sentence four of 42 U.S.C. § 405 (g), see Melkonyan v. Sullivan, 501 U.S. 89, 111 S.Ct. 2157, 115 L.Ed.2d 78 (1991), and that upon remand the Commissioner redetermine the offset rate by applying either the weekly rate ($23.46) or monthly rate ($101.66) specified in the 1996 Order Nunc Pro Tunc. The reversal and remand pursuant to sentence four of § 405(g) makes the plaintiff a prevailing party for purposes of the Equal Access to Justice Act, 28 U.S.C. § 2412, Shalala v. Schaefer, 509 U.S. 292, 113 S.Ct. 2625, 125 L.Ed.2d 239 (1993), and terminates this Court's jurisdiction over this matter.
The attached sheet contains important information regarding objections to the report and recommendation of the Magistrate Judge.